Last week in the wake of the HBOS saga, I wrote about how the FSA is powerless to stop any insider trading or market manipulation. Today I had a great ally in that argument: his chancellorship Alistair Darling. I can't help but feel that by announcing new legislation to help make markets "clean and efficient", Darling has admitted the impotence of the 2,700-person strong regulatory body. He said to the Guardian today, "I can't allow us to get into a situation where people quite deliberately manipulate markets for personal gain and with the potential to destabilise the financial system." I am always bemused when politicians say things like "I can't allow" about events which have already happened.

So, Darling, how are you going to fix this mess? Apparently by encouraging whistle-blowers. Giving immunity to snitches. An FBI-style witness protection programme for ethical (bad) bankers is surely just months away. What is amazing though is that, in the wake of the statistical aberrations in the HBOS price last week, whilst these whistle-blower laws might help provide evidence against those trespassers of the FSA commandments (except themselves, of course), it fails to counteract the real problem of actually catching people.

The consensus around the City is that the only time someone will blow the whistle is if they have lost money, have a personal grudge against their partners or if they have received word that they are being investigated - in which circumstance it's as simple as "first to the door gets out". The first instance being the most likely is also the inherent problem with policing an exchange. Market manipulation and insider trading are only a problem if you make money. If you lose, no one cares, yet the actions that have led to the loss are just as illegal as those that lead to a profit.

The real problem here is that defining transgressions is nearly impossible. Every day various bodies announce economic data which affects most of the related markets to a lesser or greater extent. The University of Michigan releases a survey of consumer confidence called Michigan Sentiment on the tenth of each month. Now, if you can afford to, you can send someone out to Michigan and get a copy 45 minutes early - isn't this insider trading? When Nathan Mayer de Rothschild won what is regarded as the most money ever made in trading (adjusted for inflation), by having faster horses that carried the news of Napoleon's defeat and the Rothschild wallet to the stock exchange before anyone else heard the news - was that insider trading?

One of the biggest hurdles to tackling transgressions is the problem of the exchanges. One very famous instance of market manipulation which had many traders up in arms comes to mind. There is a very successful trader working out of Switzerland who goes by the name "Flipper". Like the dolphin he is faster than lighting, but his speed isn't to be found in his tail but in the way in which he puts enormous bids and offers into the market and then pulls them, causing other traders to react and make him money. The actual mechanics of this are complicated, but suffice it to say he manipulated a price in a given market in order to get better prices for himself. The exchange responded by saying that there was no evidence to suggest market manipulation, while every trader could see this was not the case. It turns out that this one guy and his team were responsible for a large fraction of the exchange's income, equating to hundreds of millions of pounds a year. Would you say no?

Post hoc ergo propter hoc, a latin phrase meaning "after, therefore, because of it"; because there was no immunity for whistle-blowers, they didn't come forward. No. They don't come forward because they are either acting alone, or because they're making too much money. The new legislation might make people think twice about who they confide in, but not whether or not to continue practices that are as old as the markets themselves.